Two Types of Procurement: Project Based and Operational!

Types of Procurement

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Procurement operations are the backbone of every company’s supply chain. Fundamental to procurement is the acquisition of goods and services from a party that’s further up the supply chain.

However, there are two different types of procurement: project-based procurement and operational procurement. 

Holistically both types of procurement follow the same process: once a requirement is identified, the buyer is required to find the right supplier.

This may include generating a requisition and involving all stakeholders in the process. After the requisition has been generated, the supplier will provide a quote with the terms and conditions of the order. This document is the first legal contract in the operational procurement process.

Then, the procurement department will evaluate all the quotes and select the one that is best for the organization. The supplier will be the most affordable vendor with the highest quality and ability to deliver the order on time.

However, for all of their similarities and overlap in operations, each type of procurement has a different strategic focus and often operates using different actors that have separate purviews.

Below we cover what each of these types of procurement is and the different technologies that influence both types of procurement processes.

Project-Based Procurement

In general, project-based procurement is the process of purchasing materials for a specific project over a predetermined period of time. Operationally project-based procurement, involves grouping all purchasing activity within a project framework, allowing the organization to plan its budget accordingly. 

Within the project, materials can be further grouped into categories, giving rise to organizational strategy project-based procurement called category procurement, where items are grouped into categories derived from their similarity and managed accordingly. This method is often more efficient and avoids the risk of material changes.

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A project can range from a large manufacturing operation to a small exhibit at a conference in project-based procurement to even online email marketing campaigns. In either case, each purchase is associated with a particular purpose or project.

Ultimately the project-based framework ends up giving oversight of the procurement responsibility to the project manager and making those assigned to the project integral to the procurement process. The key to success is to make the process easy and transparent for everyone involved.

Project-based procurement requires a flexible platform to support multiple client organizations and projects. Overall, these types of solutions are usually cloud-based and enable following a procurement plan with preliminary information. It makes complex third-party purchasing workflows easier to manage and scale by supporting multiple (potential) client organizations and projects.

These platforms’ robust data segregation minimizes the possibility of storage silos and offline communications. This helps project managers monitor all activities and ensure a successful outcome.

Companies that have contributed solutions in the space are known as “vendor relationship management” firms, examples of which include companies such as Parq.

Operational Procurement

Operational procurement signifies the procurement of goods and services needed for sustaining an institution’s daily business processes. It may also be illustrated as MRO purchasing, which refers to upkeep, rehabilitation, and operations, as these purchases are essential in keeping the corporation steering.

Operational procurement bears a reactive outlook concerning the purchase of materials and supplies, employing fast quote and order processes to persist in running smoothly.

Often operational purchasing managers work to improve delivery management, contract management, and managing any criticisms. It’s about optimizing purchasing processes so that the business has key access to the sources they require whenever they require them, in the right quantity, at the right place, and at the best feasible price.

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However, the most important role of operational procurement is to coordinate with other processes and cut costs. It streamlines the procure-to-pay and source-to-contract processes. The more extensive the business, the more advantages you get from involving operational procurement tenets to their all-around procurement procedures.

Operational procurement is involved in buying a significant amount of things that are involved in more day-to-day operations they have the ability to build strongly repeatable processes that are not possible to do in project-based procurement due to potential nuances and comparative infrequency.

In addition to facilitating the purchase of goods and services, operational procurement works much more in real-time and thus requires a system to support real-time purchasing, inventory reporting, and electronic document transmission.

Moreover, the process will help companies get the best prices on their products, which will increase their profit margins. By following the principles of operational procurement, businesses can optimize their purchasing functions and make sure they have adequate access to the materials and services they need.

Standard ERP systems, like Netsuite, provide often what is needed for operational procurement. However, for companies that are of a smaller scale, there are applications that simplify certain parts of the operational procurement process. A great example of this is bill.com a website that helps you simplify the payment and purchase order portion of organizational procurement and a real-time manner.

Types of Procurement article and permission to publish here provided by Naathan Mohan. Originally written for Supply Chain Game Changer and published on March 9, 2022.

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